Japan braces for soft retail sales, CPI

The Japanese yen has posted gains on Wednesday, recovering most of the losses from the Tuesday session. Currently, USD/JPY is trading at 103.40, down 0.23% on the day.

BOJ minutes discuss tweaks to policy

Japan continues to struggle with an economic downturn and a resurgence in the number of Covid cases. In case you think that this is reason enough for the Bank of Japan to entertain drastic changes in monetary policy, think again. The ever-cautious central bank remains committed to an ultra-accommodative policy, although this has failed to raise weak inflation levels, and the bank’s inflation target of around 2 percent appears wholly unrealistic. The minutes from the October policy meeting indicated a discussion as to how to reach this inflation goal, but clearly the bank does not plan to make any wholesale changes. Still, some of the nine board members expressed reservations about the current policy. One member suggested tweaking the purchase risky assets such as exchange-traded funds needed to be tweaked. Another said that there was a need to “deeply discuss” the bank’s policies with regard to achieving its inflation target. There was a stark reminder about the lack of inflation earlier in the day, as BoJ Core CPI fell by 0.1% in November. The index has failed to post a gain since June.

The yen has made modest gains against the dollar in recent weeks, and USD/JPY is trading at its lowest level since April. The sagging US dollar has fared very poorly against risk currencies, while the safe-haven yen has not made sharp gains against the dollar. The BoJ minutes gave the exchange rate scant attention, but if the yen moves closer to the psychologically important 100-level, we could see the BoJ express its unease at the high value of the yen.

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USD/JPY Technical Analysis

• USD/JPY is testing resistance at 103.45. This is followed by resistance lines at 104.01 and 104.72
• 102.75 is providing support. The next support line is at 102.19
• The pair is trading at the 10-day MA line

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